tv Nightly Business Report PBS September 26, 2013 7:00pm-7:31pm PDT
this is "nightly business report" with tyler matheson and suzy. brought to you by -- >> you get close to iconic landmarks, to local life, to cultural treasures. viking river cruises. exploring the world in comfort. >> small stocks, big gains. they've led the market this year and are now signature at historic highs. but which small companies are still buys? facebook's facelift. shares topping $50 a share as investors on wall street fall in love with the stock. so what's the company getting right that others aren't? and if you build it, will the uninsured come? one small insurer is betting on it as it makes a big investment in those new health care exchanges. all that and more tonight on
"nightly business report" for thursday, september 26th. good evening, everyone. big things sometimes come in small packages. that was the talk on wall street today. stocks finally broke their five-day losing streak, but it wasn't the big companies that lifted the markets. it was small cap stocks. they have quietly and steadily risen in value, and today the russell 2000 index of smaller companies closed at a fresh all-time high. so far, the russell index has surged 27%. that's a lot more, 10% more, than the gains on the dow average this year. also giving a boost to the markets today, good news about jobs. initial jobless claims dipped to a nearly six-year low. looking at the closing numbers, the dow added 55 points, the nasdaq rose 26. and the s&p 500 index up almost five points. >> do they still have room to run? here to answer that question and more is jay kaplan, portfolio
manager and principal at the reus funds. mr. kaplan, welcome. why are the small companies outpacing the big blue chips by so much and can they continue to? >> well, you know, it's been a very good year, like you've talked about. because interest rates have been zero, and we've had economic growth in the u.s. albeit slow, but economic growth. with those two things together, that's been very good for stocks. been very good for small caps. if you go back to the spring, when the fed started to talk about tapering, the implication there was that the economy would grow even faster, the u.s. economy in particular. and small cap stocks are very much leveraged to the u.s. economy so the market took that as a signal to keep the small cap stocks going up, and they performed better than the rest since then. >> all right, so to follow on that line of thinking, if the fed is now saying that it's going to hold off on the tapering plans of the stimulus, that would mean that the economy is slowing down a bit, so small
cap stocks shouldn't perform as well. why are they continuing to go up? >> well, as long as the economy is performing at greater than zero and it's a couple 3%, that's fine. and still very low. that is also still fine. now, that's not to say that we couldn't have a correction in here at any point in time. it's been a terrific year. so if the small cap stocks went down 5% or 10%, that would not surprise us. that's kind of a normal occurrence. but even with that kind of a gift, that would still make the small cap performance for this year an absolutely terrific year. >> so if they're up 27% so far this year, that would suggest that some small cap stocks have gone out of the undervalued territory and maybe are fully priced or maybe even a little more. are you still finding values anywhere, and if so where? >> we are finding values, and what we're focused on now is the quality trade. we think you need to own high quality small cap companies. those companies that have very
strong balance sheets and earn high returns on capital. and if you think about the russell 2000 for a second, 30% of the stocks there don't urn a -- earn any money whatsoever. those have been the best performers. the companies that earn a lot of money, those have been the ones that have lagged. >> give us an example of some stocks if our viewers are interested in dipping into this area. can you give us a few names? >> sure, i can give you a couple of names in the retailing space and specialty retailing. one company we like very much is the buckle. the buckle sells apparel to folks between 18 and 30 years old. it's a focus on jeans, a focus on higher end jeans so they're not competing at the killer price point. they're more of an 80, $90 jean product. has a great track record of paying dividends and that's what we like quite a bit. >> how about some others? i take your point. you're basically saying look at the balance sheet. lack at the income statement. and stay away from those stocks.
those 30% of stocks that have no earnings at all. you're pointing us to ones that actually are turning up money, right? >> right. we don't want to earn the junk. the junky companies that maybe would have died in past economic cycles were able to refinance their way back to life, kind of zombie companies. and those are gone up. another company we like still kind of in that apparel area, really on your feet, is shoe carnival. a retailer of shoes. they have a lot of good growth. they cater to the family. there's been management changes there. they're adding more brands. it's a really wonderful company. we like that one as well. >> i assume these two companies you mentioned, the buckle and shoe carnival are ones that are in a reus portfolio somewhere? >> they are st. louis in reus portfolio. >> you own them personally? >> i do not. >> we thank you. jay kaplan, principal at the reus funds. only four days left for congress to reach a deal on legislation to keep the federal government up and running. but it won't be easy.
house speaker john boehner had harsh words for president obama today, even as he urged fellow lawmakers in the republican party to be flexible in crafting a deal. >> our president says "i'm not going to negotiate." well, i'm sorry, but it just doesn't work that way. we're not going to ignore washington's spending problem. and we're not going to accept this new normal of a weak economy, no new jobs and shrinking wages. >> john joins us from washington. john, president obama was also out speaking today. what did we learn from him? >> he said he was not going to negotiate, the very thing that john boehner was reacting to, which is why that race to avoid a shutdown was kind of like a race with cement shoes on. nobody moved. there was no action in the estimate. we're still waiting to see a final resolution of the extended government spending in the senate, then kick it back to the house.
john boehner said today that he's not even going to address as a speculative thing what the house is going to do when that bill comes back. unless they pass it by monday, we're going to have a shutdown. >> so mr. boehner might not want to speculate. i'm going to force you to. if that bill comes back to the house without the shutdown or the defunding of obama care in it, what are the republicans likely to do? are they likely to send the spending bill back to the senate that has some sort of condition attached to it? >> you know, i think, tyler, that they may focus their energy so much on the debt limit bill that they decide to let this one go, avoid the government shutdown and get to a fight. now, that fight is more daj dangerous for the economy, more risky for republicans as a party. backlash for them, not to mention their constituents. but it feels as though they may be moving in that direction. the house has not said what it's going to do. leadership aides that i talk to say they do not rule out the
idea of attaching some other provisions to that bill when it goes back to the senate. but one of those in question, the repeal of a medical device tax that raises $30 billion over ten years. the senate flatly ruled out, said we're not going to do that. >> you mentioned last night when we were talking about that that social security payments will still be made even if there's a government shutdown. what does all of this rhetoric going back and forth in washington really mean for the average guy on main street? >> well, the longer this goes without being resolved, the greater the loss of confidence. at the high level, it's a loss of confidence in the united states and it's a precursor to what's going to happen on the debt limit. if we actually have a shutdown, it will mostly affect federal workers. it will inconvenience a lot of people. delay some things. it will cost the government money because of the distortions and ine fish sis produced by having to shut the government down and open it up later and reimburse people and that sort of thing.
you've got to look at this in the long arc. the shutdown and the debt crisis. the debt crisis is the one that has a potential to make everybody's mortgage rates go higher, credit card interest rates go higher. could put us back in recession. >> john harwood reporting from washington. another high powered negotiation going on in the nation's capital today. this one between u.s. attorney general eric holder and the ceo of the nation's biggest bank jamie dimon. they met at justice department headquarters, apparently trying to hammer out a settlement related to the bank's sale of risky mortgage-backed securities in the run-up to the financial crisis. neither side is saying very much. >> i did meet with representatives from jp morgan chase, that is an ongoing matter. i don't want to really get into the nature of the conversations, the discussions that we had.
but i will say that as we indicated yesterday in the case that we announced in the criminal division, this is something that is a priority for this justice department. to hold accountable people who would manipulate companies. that would manipulate our financial markets for their own customer's benefit or for the benefit of the companies. >> reports say the two men are negotiating a massive $11 billion settlement that would take care of multiple claims filed by federal regulators as well as several states over those failed securities. apparently it was a busy day at the justice department today. officials also broke up a massive international price fixing operation. nine japanese auto parts makers and two of their executives have agreed to plead guilty and pay $740 million in fines for conspireing to fix prices on 30 items. meantime, the treasury is now selling more of the shares it owns in general motors.
taxpayers still own more than 101 million shares of gm. that's about 7% of the company, and got it in the 2009 bailout of the auto maker. so far, the treasury has recovered $36 billion of the bailout cost with another 13 billion to go. autos and wholesales. they are two of the biggest drivers of the economic recovery. but it looks like the housing market is taking a breather these days following a strong showing in the first eight months of the year. realtors already warn that august home sales might be the last hurrah and it appears they might have been right. >> reporter: fewer americans buying homes, facing higher credit rates, tight credit and skyrocketing home prices. >> the buyers out in the market might have felt pressure to go ahead and make a decision on a home purchase and see it throw completion sooner. >> reporter: that may have
pulled sales forward as the realtors warned just last week. they said they could tell from agent lock box at listings in august that fewer potential buyers had been coming through. some say that's actually a good thing. >> the pause in the market is going to sustain the recovery cycle in the long-term because some of the metros that we're attracting, showing some very frothy price jumps over the past year. and this will kind of slow that down. >> reporter: prices have been rising steadily in the year, up over 12% from july a year ago according to recent reports. usually home prices rise due to home demand, but right now they're rising more because there's so little for sale. sales of newly built homes did rise in august, but still the second-slowest pace of the year because buildings just aren't building fast enough. >> new home sales, as a percentage of total house sales, are only 6.99%. throughout history, they've been 20, 25%. they added a lot to gdp.
>> reporter: realtors say they expect sales to slow in the fall and then stay essentially flat for all of next year. mortgage rates and home prices will play with the numbers month to month, but long-term, what the housing recovery really needs is more houses. still ahead, what's driving the eye-popping reversal in shares of facebook? they've more than doubled over the past three months. first, though, a look at how the international markets fared today. for the first time ever today, shares of facebook closed above $50 apiece, double what they went for just two months ago after the social networking giant proved it could make money, real money, off of mobile
advertising. julia has more on what's behind the turnaround in facebook shares and why more investors are now friending the stock. >> reporter: facebook has been on a tear. bolstered by a slew of positive analyst notes and upgrades. shares are up 90% since facebook's july 24th earnings report, in which the social network showed massive mobile growth. mobile now contributing 41% of facebook's ad revenue. >> their share in the mobile area is so much higher than everybody else, if you're an advertiser, you have to look at facebook. >> reporter: people are now spending more time with digital media, including facebook, than watching tv. and new studies show that facebook works for advertisers. facebook's share of internet usage in the u.s. is about four times all competing services, including instagram and twitter combined. facebook increased its share of
internet minutes 33% in august from a year ago. facebook is also gaining ground on madison avenue. >> hundreds of thousands, if not millions of advertisers literally facebook has over a million advertisers, are reaching out to these platforms to reach people that are very difficult to find elsewhere. >> reporter: sources at facebook and ad agencies say there's been a huge perception shift in the value of facebook ads and attention to its results. facebook points to a study it did with t-mobile on its latest rebranding campaign, claiming it influenced the addition of nearly 800,000 new customers. the facebook campaign had a better return on investments than tv ads. for "nightly business report," i'm julia borsten. we turn now to our market focus segment. we begin with a big earnings report for one of the newest members of the dow. we're talking about nike. it posted strong earnings in revenues that came in way above analyst estimates. the maker of athletic goods saw growth in every region except
china. nike was the best performing stock in the dow today. shares rose 2% at $70.34 in the regular session and that's a new all-time high. and then they rallied as much as 6% in afterhours trading. a full year earnings in revenue forecast for hertz, blamed on weaker than expected volume at u.s. airports. but according to the ceo, the impact of those weaker numbers will be partially offset by higher prices. separately, hertz says it's adding tesla model cars to its fleet in san francisco and los angeles. but investors still didn't like what they heard. the stock fell 16%. shares of jcpenney rose after the ceo told investors he did not see the need to raise cash this year. his comments were in response to reports that the chain did need to raise more cash to get through the holiday season. but then late today, the company said it plans to sell 84 million shares of stock in the secondary offering. go figure. the shares finished a regular
session 3% higher at $10.42. but then they fell dramatically after hours on news of that secondary. jabel circuit sees challenging times ahead. the company warning that its fiscal first quarter earnings will come in well below expectations and it expects to record hrs between 35 and $85 million because of exposure to blackberry, its second largest customer. the stock dropped about 10%. but wait, there's more. more blackberry news. it didn't end there with jabel. t-mobile, the nation's fourth largest wireless carrier says it's no longer going to stock blackberry devices in its stores because not enough customers are buying them. fairfax financial says it does have every intention of completing its acquisition of blackberry despite lingering doubt about whether the deal will go through and those doubts are reflected in blackberry's share price.
it closed at $7.95, far from fairfax's $9 a share offering price. washington is giving a big break to small businesses, with just five days to go before health care insurance exchanges open up. the obama administration announced a one-month delay for small businesses. the online marketplaces will open on time on tuesday for individuals, but the white house now says companies using the so called shop marketplace for businesses with fewer than 25 employees will not be able to formally buy coverage until november 1st. the small businesses will still be able to look through the plans and don't actually need to buy insurance until december in order to have coverage start on january 1st. >> with millions of americans expected to begin shopping for new insurance plans on tuesday, some for the very first time, some smaller health care providers see this as a great opportunity to grow larger and compete against the giants in the sector. bertha coombs joins us now with
a look at one such company, molina health care, as it gets ready for its debut to the big-time. >> it is a big debut. these companies are used to negotiating with the state or with one employer. now they're going to have to win over customers one at a time. and molina health is making a big bet that it will be able to do just that. molina health care is using employees and their kids to star in its obama care ad, because in the race to win new clients on state insurance exchanges, they'll play a key role. >> we've been doing this for 33 years. so we've developed a lot of trust, i think, in the community. and that's going to be an important part of this. >> molina covers nearly two million medicaid patients nationally and is offering plans where it does business. >> we've hired 2,000 people this year to get ready for this and we have built networks and key y -- kiosks that are available.
people can come in to get information and not feel like they're getting the hard sell. >> but it's the stuff at its community clinics and areas with high numbers of uninsured who will be at the heart of enrollment. right now, california is the flagship for the entire molina enterprise. reaching out to parents whose kids are covered under medicaid but don't have coverage themselves. >> we know there's some that make a little too much, that they do not qualify for any kind of insurance. >> they may now qualify for medicaid expansion coverage or subsi subsidies. >> molina expects the combination of exchange enrollment in places like california will help it double annual revenues from 6 billion to $12 billion by the end of 2015. >> they can add as many as 100,000 lives in california alone. exchanges could certainly be a nice increase on their top line. >> but enrollment growth may not translate into profit, which is why some insurers have been cautious about the exchanges, to get premiums low enough to be attractive leaves little room for error.
>> just small short fall in the market. the biggest risks are a broad-based mispricing or said another way, adverse selection, where only the sickest individuals sign up for insurance. >> add to that the uncertainty of a new individual market. >> my biggest worry about this whole thing is that we do all this work, and we put together the networks and we gear up for this, and then no one takes us up on the offer. >> dr. molina hopes they have the right competitive edge. but for all of these insurers, it's really going to depend on pricing and that the right mix of people actually signs up for coverage. so a lot of people are taking a wait and see attitude this year to see just how these markets will work. >> very interesting experiment about to take off here, starting next week, october 1st. bertha, thank you very much. for more on molina and other health care stories, check out our website, nbr.com. coming up, small
manufacturing had been booming but things may be changing and that could be a troubling sign for job growth. but first, here's a look at how commodities, treasuries, and currencies performed today. now to a story on manufacturing that we wanted to bring to you yesterday but we couldn't because of technical issues. there's a new report showing that small american manufacturing companies are now pulling back and that may have troubling implications for u.s. job growth. phil lebeau has more on the cautious tones found on shop floors. >> reporter: just west of chicago, it looks like business as usual. but the company is seeing a slowdown in orders, and that's raising concerns. >> it's like running in mud
these days, if you ask me. we're doing a lot of work, we're just not really making the progress we'd like to see. we had a good week last week, but i need to see at least six to eight more weeks of that before i get my own confidence back up. >> reporter: the uncertainty has prompted united display to delay buying new equipment and filling open job. >> just yesterday, my ceo said we have four open spots in the second shift. i said we've really got to see business pick up before we hire those guys back full time. >> reporter: the concern they have about the economy slowing down is a feeling being echoed at other small manufacturers around the country. which is one primary reason why many are holding back on spending and hiring right now. pay net, which tracks the investment of $17 million small businesses, says some manufacturers, like those in texti textiles, have expanded in the last year, while others like those in machinery and electronics, have cut back. overall, small manufacturing drops 2% for the 12th month
ending in june. >> the small manufacturers in all these different sectors, are finding that there's less orders coming in for their goods and services. so with less orders, they don't see the need to invest in greater capacities to produce more carburetors, produce more air compressors and tools and services. >> reporter: the slowdown in orders may be one reason the u.s. has added just 20,000 manufacturing jobs in the last year, a modest gain in jobs tempering optimism about american manufacturing. >> i think we will see an up tick in manufacturing employment, but the dirt is in the details and it's not going to be the hundreds of thousands jobs it once was 20 or 30 years ago. >> doing more with less while waiting for business to pick up. a new reality in many american plants. phil lebeau, "nightly business report," illinois. finally tonight, an apology of sorts from microsoft founder bill gates at a fundraising q&a
at harvard this past weekend. the microsoft chairman and software pioneer said the complicated two-handed control at delete commands that everybody has to use to log on to their computers was a mistake. >> why when i want to turn on my software and computer do i need have three fingers? control-alt-delete. whose idea was that? [ laughter ] >> basically, because when you turn your computer on, you're going to see some screens and eventually type your password in, you want to have something -- we could have had a single button, but the guy who did the ibm keyboard design didn't want to give us our single button. so we programmed the level -- it was a mistake. >> he was dancing around. it was a mistake. >> that's "nightly business
report" for tonight. thanks so much for watching. >> thanks from me as well. have a great evening, everybody. we'll see you back here tomorrow night. >> "nightly business report" has been brought to you by -- >> sailing through the heart of historic cities and latinscapes. you get close to cultural life, to cultural treasures. viking river cruises. exploring the world in comfort.
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